You may be in the position by so many others around the country: you bought your home at a time when interest rates were higher. Now, you are wanting to refinance your home, but you are concerned about your bad credit score (under 600). You think your score might make refinancing at a better interest rate an in impossibility – or at least very unlikely.

You are definitely on the right track in wanting to refinance your home: as interest rates fluctuate over time, you can find yourself in situations where refinancing could easily shave 1% or 2% off of your mortgage interest rate. After all, just a 1% drop in your loan rate could save you $50,000 or more over the life of a loan on a $250,000 mortgage. That’s worth pursuing!

Home Refinancing: The Importance Of Getting It Right

Of course, with something as valuable as your home, refinancing is not something to just jump into carelessly. Sure, it would be easy just to pick up the phone and call your current lender – or a competing lender – and get the refinancing process going.

However, given the amounts of money that you could potentially save in terms of lower interest payments by getting a better refinancing deal, it is well worth your time to get it right.

Reasons To Refinance

There are a number of reasons to refinance your home. The most obvious reason is lower monthly payments: you can easily shave off more than a few hundred dollars by qualifying for a slightly lower interest rate. Another reason is lowering the cost of your loan. The cost of your loan is determined by two things: a. the interest rate you pay; and, b. your loan terms or repayment period (e.g., 20 years, 30 years, etc.).

Most people refinance with the goal of lowering their monthly payments, which can be accomplished through a lower interest rate.

On the other hand, some people will actually refinance – at either the same or a lower interest rate – at a shorter repayment term. Meaning, they go from a 30-year mortgage to a 15-year mortgage. The goal here is usually to reduce the cost of the loan and to get it paid off more quickly, even though it may result in higher monthly payments.

Home Refinancing And Your Credit Score

The single-most important factor in determining your refinance interest rate is your credit score. Your score is the best way that lenders have found to determine how much of a risk you represent to them, and they offer their interest rates accordingly.

However, other factors such as your loan history with that particular lender and your current employment situation also play a part in the rate they offer you.

Bad Credit Home Refinancing: 3 Tips

If you have a low credit score but are interested in refinancing your home, here are 3 tips for bad credit home refinancing:

1. Know your credit score: Anytime you are seeking a new loan, researching your credit score ahead of time is essential. Be sure to check with all three of the Big 3 credit bureaus, including Experian, TransUnion, and Equifax, since your score will vary from one to the next. Knowing your score before approaching lenders give you additional negotiating leverage.

2. Track current refinance rates: Start tracking the refinance rates, if you have not been doing so already. You will want to become a mini-expert at knowing whether current rates are generally going up or generally on a downward trend. While nobody can time the market perfectly, you should refinance when rates are at least 0.5% to 1% lower than when your got your current mortgage.

3. Watch out for points: When you start shopping around for rates, be sure to get quotations from at least 5 lenders so that you can get the best-possible deal. Important: make sure to check whether the lender is charging you “points” (which is essentially a commission for the lender) in exchange for the lower interest rate.

Follow these 3 tips to get the best-possible rate for our home refinance mortgage, even with bad credit.

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Category: Finances
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